Introduction
Thailand, while neither a contracting state to the International Convention Relating to the Arrest of Sea-Going Ships (Brussels, 10 May 1952) (“1952 Brussels Arrest Convention“) nor the International Convention on Arrest of Ships (Geneva, 12 March 1999), has incorporated international maritime law principles into its Arrest of Ship Act B.E. 2534 (1991) (“Act“). The Act adapts concepts from the 1952 Brussels Arrest Convention to Thailand’s legal system and local requirements.
A significant requirement under the Act stipulates that maritime creditors must have domicile in Thailand to apply for ship arrest. This requirement creates a substantial challenge for foreign creditors without Thai domicile who seek security for maritime claims against vessels calling at Thai ports.
Although these approaches have not been tested before the Thai Supreme Court, this Update presents potential solutions to address this challenge.
Assignment of Maritime Claims
While the 1952 Brussel Arrest Convention permits third-party assignees of maritime claims to apply for ship arrest (with the assignee assuming the original creditor’s domicile), the Thai Act remains silent on claim assignment.
In the absence of explicit restrictions on the assignee’s domicile, a non-Thai domiciled creditor may consider transferring its maritime claim to a Thai-domiciled entity. This Thai entity would then apply for the ship arrest. As the assignee satisfies statutory conditions under the Act, this approach potentially provides a viable method for foreign creditors to enforce maritime claims in Thailand.
However, this arrangement could be challenged as an attempt to circumvent the Thai-domicile requirement. If the assignment appears to be primarily a means to bypass the domicile condition, with the Thai entity merely acting as a nominee without genuine interest in the claim assignment, a Thai court may reject the arrest application on the ground that such an assignment constitutes a sham transaction intended solely to evade statutory restrictions. Assignments conducted with reasonable consideration or remuneration are more likely to be considered legitimate. In doing so, the assignor and assignee must also take into consideration the relevant tax implications.
Establishment of Thai Domicile
When a foreign maritime creditor has an advance knowledge of a debtor vessel’s schedule and sufficient time before the vessel enters Thai waters, establishing domicile in Thailand presents another approach to satisfy the Act’s requirements.
Creditors pursuing this option should seek comprehensive advice regarding local regulations and legal requirements governing domicile establishment in Thailand.
Conclusion
The assignment of maritime claims as a strategy to address the Thai domicile requirement under the Act remains legally debatable. While the Act contains no explicit prohibition against such assignments, the absence of Thai Supreme Court precedent on this specific matter creates an area of legal uncertainty. Thai courts will likely undertake case-by-case evaluations to determine the legitimacy of such arrangements.
It is also important to note that foreign creditors may face varying legal requirements when establishing domicile in Thailand, depending on their jurisdiction of origin and corporate structure. These requirements can significantly impact implementation timelines and compliance obligations.
Creditors contemplating either the assignment approach or domicile establishment should conduct thorough risk assessments before proceeding. Any strategy employed must be structured to withstand judicial scrutiny, with particular attention to demonstrating legitimate business purpose beyond mere circumvention of domicile requirements.
If you have any queries or need clarifications on the above, please contact our team.
This Update was prepared by Ittirote Klinboon whose contact details are set out on this page, Rawi Meckvichai (Counsel, Rajah & Tann (Thailand)) and Toon Thanakham (Senior Associate, Rajah & Tann (Thailand)).
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